Cadillac Tax Reporting

Effective January 1, 2020, the Patient Protection and Affordable Care Act (ACA) imposes a 40% non-deductible Excise Tax on High Cost Plans (sometimes called the “Cadillac Tax”). The Cadillac Tax is imposed on the excess value which is the amount by which the value of the health coverage exceeds specified threshold amounts. Plan sponsors will be required to calculate and report the amount of the excise tax, if any, that is owed with regard to their health plans. Although the excise tax generally will be paid by insurers and/or third party administrators, the amount of the tax is expected to be passed through to the employer sponsoring the high-cost plan (or plans).

If employers are found to be under-reporting the cost of their health plans, the IRS has the authority to impose a penalty equal to the tax not paid, plus interest.

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2-Year Delay of Cadillac Tax

Congress has passed a year end budget deal that will affect three tax provisions of the Patient Protection and Affordable Care Act (ACA). The Excise Tax on High Cost Plans (Cadillac Tax) is delayed by two years until 2020. The Cadillac Tax is a 40% tax imposed on the cost of employer-sponsored health coverage exceeding certain limits, generally for self-only coverage and for family coverage. Many reports show that the majority of employer sponsored health plans would be affected by the tax within the first 5 years, and employers have expressed concern over the effect the tax would have on the cost of health benefits. The legislation also makes the tax deductible for employers, further reducing the cost burden of the tax.

The medical device tax, which has already gone into effect, is also suspended for two years in 2016 and 2017, and the health insurance providers' fee imposed on insurers is lifted for one year in 2017.

If I don’t sponsor any plans that are subject to the Cadillac Tax, will I have to file a report?

Probably not. An employer is only subject to the Cadillac Tax if the employer offers health plans that are included when calculating whether an employee’s coverage has exceeded the applicable threshold. If an employer does not offer such coverage, the employer will probably not have to submit anything to the IRS. Future agency guidance is likely to establish rules for who is required to submit a report.

If I sponsor coverage that’s subject to the Cadillac Tax but my coverage will not exceed the thresholds for any employee for the year, do I still have to submit a report?

The current ACA rules do not include an answer for that question. Many employers are hoping for a safe harbor plan design that will exempt them from having to perform the calculation or report information to the IRS. Future agency guidance is likely to establish the reporting rules.

Which health coverage is subject to the Cadillac Tax?

The following benefits are subject to the Cadillac Tax: major medical (including retiree medical), prescription drug, Health FSAs, HRAs, HSAs (to the extent contributions are made by the employer, or made by the employee via pre-tax salary deferral), gap coverage, and, if purchased on a pre-tax basis, specified disease, hospital indemnity, and other fixed indemnity insurance. Certain wellness benefits or on-site clinics may also be subject to the Cadillac Tax if they are considered group health plans.

The following benefits are not subject to the Cadillac Tax: standalone dental, vision, long-term care, accident, and disability coverage.

Neither American Fidelity Assurance Company nor American Fidelity Administrative Services provide tax or legal advice and, given the complexity of these laws, we always recommend working with your legal counsel on how the laws impact your specific situation.

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